STOCK MARKET INDICATORS: DEFINITIONS

Chartist

Technical analyst who believe recurrent trading patterns can assist them in forecasting future price movements. The analyst will plot the patterns of stocks, bonds and commodities to formulate buy and sell recommendations for clients.

Technical Analysis

Research and examination of the market and securities as it relates to their supply and demand in the marketplace. The technician uses charts and computer programs to identify and project price trends. The analysis includes studying price movements and trading volumes to determine patterns such as Head and Shoulder Formations and W Formations. Other indicators include support and resistance levels, and moving averages. In contrast to fundamental analysis, technical analysis does not consider a corporation's financial data.

Ascending Tops

A chart pattern that tracks a stock's price over a period of time. The pattern will show that each peak in the stock's price is higher than the preceding peak. This upward movement is considered bullish.

Descending Tops

Chart pattern where each new high price for a security is lower than the former high price. In other words, from the stock's high price, it falls and then rises. However, the price never reaches the stock's previous high price. If this pattern continues, technical analysts consider this type of trend to be bearish.

Breakout

Movement of a security's price that is above or below an established trading range. The movement may either be above a resistance level or below a support level. A breakout is considered to indicate a continuing move in the same direction.

Correction

Reverse movement, usually downward, in an individual security's price. If the overall market has been rising and then has a sharp fall, this is said to be a "correction within an upward trend." Technical analysts note that, in a bull market, corrections should be expected--no market, or security, moves straight up or down.

Double Bottom

Used in technical analysis, it is chart pattern of a stock's prices showing a drop in price, then a rebound, then another drop to the same low price. The pattern usually means the stock has support at that low price and should not decline further. However, if the stock's price does drop through that same low price, the security is expected to reach a new low.

Double Top

Used in technical analysis, it is chart pattern of a stock's prices showing a rise to a high price, then a drop, then rebound to the same high price. The pattern usually means the stock is resisting a move to go higher. However, if the stock's price does move through that same high price, the security is expected to achieve a new high.

Head And Shoulders Pattern

A technical trading pattern used to chart stock price trends. It resembles the head and shoulders outline of a person. In a head and shoulders top formation, the stock reaches one plateau (the left shoulder), then goes higher (the top of the head), and then drops back to the plateau again (the right shoulder). The head and shoulders top pattern signifies the reversal of an upward trend--prices should be falling. A head and shoulders bottom pattern signifies the reversal of a downward trend--prices should be rising.

Moving Average

An average that is based on security or commodity prices over a period of time (few days to few years) that shows trends for the latest period. It is a rolling average when the latest day's figures are included in the average and the oldest day's figures are not included.

Resistance Level

The upper limit of a security's trading range in which selling pressure tends to cause the price of a stock to decline. For example, if ABC's stock ranges between a low of $24 and a high of $36 per share, $24 is the support level and $36 is the resistance level. When a security breaks through the resistance level, technical analysts believe the security will reach new high prices.

Rising Bottoms

A chart pattern that shows a rising trend in the low prices of a security. This signifies that the security's support levels are increasing. If rising bottoms are combined with ascending tops, a technical analyst would call the pattern bullish.

Support Level

The lower level of a security's trading range where buying pressure tends to bid up the price of the security. That is, its price stops falling because there is more demand for the security than there is supply. If, however, the security's price falls below its support level, analysts consider this to be very bearish.

V Formation

A V formation is a technical chart pattern indicating that the security being charted has bottomed out and is now in a rising (bullish) trend. An inverse (upside-down) V is indicative of a bearish trend.

W Formation

Technical chart pattern of a security's price that shows the price has hit a support level two times and is moving up--also called a "double bottom" formation. A double top is a reverse W-- the price has hit a resistance level and is headed downward.

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